Bill What You're Worth, Third Edition
Pricing your services and billing for them is one of the most important skills of the successful accountant. Unfortunately, formal education and training courses seldom discuss pricing or billing and firms rarely discuss pricing in an organized manner, making it all too easy to adopt bad habits and policies that impede profitability.
David Cottle’s Bill What You’re Worth walks you through the most common pricing methods and methodologies, teaches you how to discuss pricing with clients, and offers advice on how to motivate employees to bill what they’re worth.
This edition includes a new discussion on gauging client satisfaction and the key performance indicators to monitor to ensure you are offering top-notch client service.
Earn what you’re really worth! Learn how to demonstrate your true value to clients.
By following the advice in this book you will be able to:
- Use tools to implement specific value pricing scenarios
- Charge more for those engagements that justify a higher price
- Avoid price disputes and handle misunderstandings in an agreeable manner
- Upgrade your marginal clients’ profitability
- Raise your standard chargeout rates if needed
Praise for the second edition:
“This book was an eye-opener for me and helped me make some changes to my business that were very necessary. I would definitely recommend that any tax or accounting professional who wants to improve their quality of life should read this book.” – Sheldon P., CPA in Pennsylvania
Investment Versus Value
Compare the following terms, and consider the contrasts:
|Investment||Return on investment|
Consider the first row in the previous table. In every personal and economic activity you pursue, you think that the benefit of doing something will exceed the cost. Whether it is having a child or going to college, you estimate that the benefit will exceed the cost (including time, money, and inconvenience).
Consider the second row. In everything one does in life, one expects the results will exceed the effort; else why do it? This applies to the undertakings in one’s personal life, like going on a diet or quitting smoking, as well as with business activities.
Look at the third line. In every business activity, the output must exceed the input or the venture is uneconomic. The old Soviet socialist system liquidated the infrastructure left over from the Czars over a 70-year period. Each year, the output of the system was less than the inputs until it collapsed.
And look at the fourth line. Whenever one invests, one expects a return on the investment and a return of the investment.
The left side of the table represents activities; the right side represents outcomes.
- Which side of the table does a time-keeping system measure? That’s right, it measures the left column, the activities performed.
- And which side of the table do clients care about? They care about the right column, the outcomes that CPAs obtain for them.
All activities exist within the CPA firm. They may not even be visible to clients. In fact, they are often invisible. All outcomes are valued by the client and such outcomes exist externally to the CPA firm and are usually apparent to the client.
A time system measures the cost, effort, and so forth, that a CPA invests in an engagement. But clients care about the right column. They care about their benefit, the results they obtain, the value of the service to them.
There is a myth that the amount on a CPA’s time-keeping system indicates the fair price. The reality is that the amount on a time-keeping system indicates only what the firm invested in an engagement at standard rates. To the client, the amount has little to do with the value of the work.
Often, accountants get caught up in their costs in the job because cost measurement is what they do. They often ignore what clients care about—value—because value is subjective and difficult to measure.
Cost-plus pricing creates an inevitable conflict of interest with clients. Cost-plus pricing means increasing the client’s costs to increase the CPA’s profits. In 12 years of accounting practice and over 30 years as a profitability adviser, I have never seen a CPA firm stretch their hours to make more money. Nevertheless, clients sometimes believe there is a risk their accountants will do so.
With today’s emphasis on downsizing, reengineering, and doing more with less, cost-plus pricing is the exact opposite of efficiency. It creates what economists call perverse incentives on CPA efficiency. IBM once had a similar problem when it paid its programmers by the line of code they wrote. The programmers responded by increasing the number of code lines at the expense of efficiency.
By making hours important, you encourage the client to focus on hours instead of results. The myth that value is created from labor was popularized by Karl Marx. He called it the labor theory of value. It is ironic that so many accountants subscribe to this bedrock theory of socialism.
The alternate theory (on which capitalism is based) is the subjective theory of value, which holds that goods have no inherent value; instead, they are worth only what people are willing to pay for them.
But by charging a standard rate several times higher than your client makes per hour, you force the client to focus on your hours.
If your clients focus on hours, they constantly try to figure whether they can afford you and ignore the value you provide. The multi-dimensional value you create is turned, like gold into lead, into a one-dimensional, commoditized, easily compared price.
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